Question

Bond’s clean price is $870. Coupon rate is 6%. The coupon is paid annually. There are two months left until the next coupon date. What is the bond’s dirty price?

Answer 1

Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. There are two months until the next coupon payment, so ten months has passed since the last coupon payment.

Accrued interest = $60 × 10/12

Accrued interest = $50

Dirty price = Clean price + Accrued interest

Dirty price = $870 + $50

Dirty price = $920